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Systems thinking is a highly effective approach to managing organisations. It sees complex entities as a series of components that make up the whole, each part interacting with and influencing the rest.

The various divisions, units and teams – the components – of a large organisation continually interact with and affect each other. In effect, they behave collectively as a system. As such, business leaders need to take a ‘whole-system’ perspective if they’re to maximise organisational performance.

Seeing the whole

To get the complete picture, leaders need an in-depth knowledge of the entire organisation, its various moving parts, and how each component impacts upon the rest. But there’s more to systems thinking than that.

Chain reaction

Business leaders need to understand the adaptive nature of systems. As dynamic entities, systems adjust to changes imposed on them – often with unpredictable results.

Leaders therefore need to know how the actions they take in any one part of the system will cascade down to affect the whole.

Supply and demand

What’s more, systems thinking requires a genuine understanding of both sides of the demand and supply equation.

Firstly, how much demand is there on the system? When and where will the organisation’s output be required? What are the likely peaks, troughs and seasonal variations in demand? What external factors will affect demand, and how?

And importantly, how much demand is due to the system not supplying what it should in the first place? In the UK public sector, some estimates put this so-called ‘failure demand’ at 80% of the total.

On the supply side, leaders need to understand their organisation’s capacity to provide the goods and/or services it offers.

Systems theory can help leaders to understand capacity constraints. This means they’re better placed to identify the resources needed for work to move effectively through the system. Otherwise, their focus is too often on the capacity to store work (storage capacity), rather than the scope to flow it (flow capacity).

Behaviour

Finally, leaders need to adopt the right management style, moving away from a purely command-and-control mentality. They must accept that the performance of their system is as much a factor of its design as of the work done by its employees. Issues such as poor performance, low morale or stress among the workforce often result from problems within the system itself.

Barriers to systems thinking

So what’s stopping leaders from gaining a systems perspective?

Organisations are structured into divisions and sub-divisions, each with its own managers, objectives, priorities, budgets and performance management targets. As a result, people understandably focus on the piece of the puzzle they’re responsible for. So it’s rare for leaders to be able to see the entire system.

Additionally, managers in each part of the organisation may not be incentivised to work with the other components to help meet the overall aim. As such, there may be no common vision; no shared ‘map’ of the system.

The performance targets that are often implemented in organisations can act as a barrier to systems thinking. They can bring about leadership behaviours that are counterproductive to the overarching mission.

And in the public sector especially, targets can be a tool for stakeholders to label units as a ‘success’ or ‘failure’ – rather than a measure of how the system is performing. To make matters worse, solutions to failure tend to focus on the part of the system where the target was missed, not the system as a whole.

Moreover, most organisations are managed in a top-down, command-and-control way. But systems-based leadership means allowing frontline staff to develop a thorough understanding of the organisation, and empowering them to improve processes from within.

Taking a systems perspective

Creating a culture of systems thinking isn’t a quick task. It takes time to embed the knowledge and behaviours needed to make decisions, and take actions, that will benefit the system as a whole.

With this in mind, systems thinking shouldn’t be the preserve of a select group of senior leaders. A whole-system perspective can only be achieved by developing the ability to map work flows and processes among the entire workforce. In this way, any changes to the system can start with a clear idea of the organisation’s aims and purpose – and crucially, the needs of its end-users.

Are you a systems thinker?

Do you see the whole system, rather than trying to optimise your local resources? A ‘local’ perspective can damage the performance of the system as a whole.

Do you regularly walk through the process that your customers experience? If not, it will be impossible to generate a map of your system, and identify its potential failure points.

Do you regularly map your user experience, and make the map available to all who need it? Process-mapping should produce shared knowledge about the way the system is configured, and how its performance is influenced by its design. This can then act as a reference for everyone involved in improving the system.

How do you measure demand and capacity? Many organisations – especially public bodies – measure activity (the work done), instead of demand (the work coming in). This leads to a lack of understanding of capacity constraints.

Are your performance management measures used for improvement, rather than judgement? Their purpose should be to prevent errors and improve processes, not to find culprits when things go wrong.

What actions occurred as a consequence of any process analysis? Good systems thinking practice is often characterised by fast decision-making and process change. Decision by committee isn’t conducive to systems thinking.

Is system design a top-down or bottom-up process at your organisation? System design is at its most effective when it involves the people who know the system best: frontline staff and service users.

Case study: The NHS winter crisis

The 2014-15 Accident & Emergency winter crisis brings to light many of the organisational issues and challenges outlined above. It’s a textbook example of a ‘whole-system’ problem – and one where a lack of systems thinking has meant a failure to identify its root causes.

During winter 2014-15, only 86% of patients passed through A&E in four hours or less. This was significantly below the government’s 95% target, and a much greater shortfall than in previous winters.

Yet demand for A&E services rose only 2% year-on-year during that time. Such a marginal increase shouldn’t tip any system into critical failure – especially when seasonality is entirely predictable.

So why did the crisis happen? Why do winter crises keep happening? And why do they seem to get worse each year?

The issues at hand

A&E is, of course, just one part of the enormous, infinitely complex NHS system. Demand for A&E services, and the capacity to provide them, depends on other parts of the hospital, and on other institutions within the health service: GP surgeries, community health and social care services, the 999 and 111 phone lines, and so on.

Perhaps inevitably in such an intricate system, there’s no common view of the whole, and no shared vision of what everyone’s trying to achieve.

Each department is run separately, with its own objectives, pressures, budgets and targets. So clinical leaders rarely observe the patient journey end-to-end, and can lack visibility of potential failure points across the system.

The four-hour A&E waiting target brings its own challenges. As a yardstick to gauge flow capacity, it is an effective measure. But it’s widely considered – within and beyond the NHS – as a reflection of performance. It’s used simply as a ‘line in the sand’ between success and failure.

The upshot is that measures to improve A&E departments that miss the 95% target focus largely on the units in question. They fail to address issues elsewhere in the system which contribute to the problem. And they encourage short-term optimisation of A&E resources, rather than long-term solutions to the wider problem.

At the same time, demand for A&E services isn’t properly understood. There’s an assumption that more people, with more complex health problems, attend A&E units during winter. But the data proves otherwise. Admissions are actually higher in the summer, while the number of patients with complex problems doesn’t generally vary from season to season.

In reality, what lies at the heart of the A&E winter crisis is a system-wide supply problem. The flow capacity of the health service as a whole isn’t being appropriately planned.

Flow capacity reduces across most of the NHS during winter, as managers, clinical staff and support workers take their Christmas breaks. This puts more pressure on storage capacity, in the form of beds, so the whole system ends up getting jammed.

The wrong solutions

This lack of systems thinking is driving actions and decisions that don’t alleviate the problem.

Firstly, when planning service capacity, senior managers tend to look at only one aspect of supply: storage capacity. Making sure there are enough beds is of course essential; but a closer look at flow capacity would identify the impact that Christmas holidays have on the system’s ability to perform in winter.

Other commonly used tactics suggest a lack of understanding of the nature of demand for health services. Take the ring-fencing of resources, for example. GP surgeries might dedicate a half-day a week to seeing only children or elderly patients, even though this doesn’t relate to demand – it doesn’t reflect when people fall ill and need to see their doctor.

And as a winter crisis emerges, under-pressure A&E wards may go into firefighting mode, transferring patients who’ve spent four hours in their department to elsewhere within the system. This simply moves the workload – it doesn’t solve it.

NHS managers may also reallocate beds from other parts of the hospital to A&E. Or they might try to deflect demand, channelling patients elsewhere to relieve the strain. But both of these approaches reduce capacity in other parts of the system.

Finally, NHS leaders have a tendency to create overly complex solutions to problems. One trust ended up with over seventy different queueing priority systems in place in an attempt to manage urgent demand. A lack of coordination can also leave attempts to improve the system disjointed, overloading staff with conflicting workloads. At one point, for example, there were some 86 improvement projects running simultaneously within the NHS.

Understanding and action

In order to tackle the underlying causes of the winter crisis, NHS leaders need a thorough understanding of:

how the different components of the health service interact with each other

the true levels of demand coming into the system at each entry point

how work flows through the NHS system

the difference between flow and storage capacity

the amount of each capacity type available to each component of the system at any one time

how the system itself can cause variations in demand and capacity

how these variations can result in delays and waits for treatment

Based on this detailed view of the system, leaders then need to consider taking the following actions:

create medium and long-term strategies to guarantee the capacity to meet demand in every part of the system, at the right time, without unnecessary delay

measure process behaviour in real time

use journey-time measures to assess where delays are being generated

address the causes of these delays

allow frontline staff to develop detailed knowledge of the system they work in

encourage continuous system improvement, based on sound process analysis and established methodologies such as ‘plan-do-check-act’.

In summary

Many operations in the public and private sectors can be viewed as complex, adaptive systems. As such, typical command-and-control approaches to running them fail to understand their nature. They’re not equipped to identify the root causes of any performance issues, or encourage sustainable, effective process improvement.

The NHS’ winter A&E crises – and the way they’re handled – are a case in point. They are the symptoms of a ‘whole-system’ problem, but are addressed locally, which fails to get to grips with the underlying causes.

A systems-based approach can help overcome such shortcomings. Properly executed, systems thinking provides a view of the whole organisation, its work flows and processes, and its demand and supply parameters. This helps make clear why services might be failing to deliver what they should.

But there are certain challenges that typically get in the way of systems thinking. Leaders must adopt the right management style and behaviours. They must take time to understand their processes from their customers and frontline employees’ standpoints. And they must embed the necessary skills across their workforces.

Only then can they gain the systems perspective required to truly maximise organisational performance.

The OUBS is delighted to announce the fourth event in the Business Perspectives series – a Change Management Masterclass. Led by David Wilson, Professor in Organisation Studies and Associate Dean for Research and Scholarship at The Open University Business School, the event will explore change implementation and what brings about the best and worst from individual and organisational performance, during periods of alteration.

Joining David will be Phil Smith, CEO of Cisco UK & Ireland who will share his professional expertise and outlook on change management.

Also contributing will be Dr Ben Hardy, Lecturer in Management at The Open University Business School, plus we’ll hear from other inspiring speakers from industry who will share real and relevant business insights into this topic.

The masterclass will blend presentations with group activities and Q&A sessions enabling participants to take practical tools and techniques back to their own professional environments, allowing you to improve your own change management processes and abilities.

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